You’re ready to purchase a life insurance policy to provide your family with financial protection when you are no longer with them. There is one question that you keep asking yourself, “how much life insurance do I need”?
Because everyone’s financial situation is different, there is no one size fits all approach to how much your life insurance policy should cover.
Here is everything that you need to know to determine the amount you should leave your loved ones should you pass away.
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Benefits of Applying for Life Insurance
Securing life insurance at any age can be beneficial in protecting those that depend on your income. But the amount you’ll need may depend on your life circumstances, budget, and financial goals. If you have a young family and just bought your first home, your insurance needs are different from a recently retired couple with no dependents.
The advantage of a life insurance payout is that it is versatile. It is a tax-free payment typically paid quicker than estate disbursements. It can be used for many financial needs, like replacing your income should something happen to you, covering your debts, or other expenses.
Life Stages and Your Life Insurance Needs
Your life is constantly evolving, so your insurance needs are always changing. There are new expenses to account for at every life stage, like post-secondary education, marriage, homeownership, kids, and retirement.
Your life insurance should meet the needs of these life changes. For instance, when your kids are young, they are reliant on your income and would need financial support to make up for that lost income should you unexpectedly pass.
Later on, you may be retired, and your insurance needs have changed. Your kids are not relying on you to replace income, so your insurance may be geared toward final expenses, estate planning, and charitable donations.
No matter your life stage, the need for insurance is the same: you want to ensure your loved ones are taken care of if something happens to you. There is no wrong time to buy life insurance. There are policies for every stage of life, even if you are diagnosed with a chronic illness.
Debt and Expenses Your Life Insurance Can Cover
To determine how much life insurance you need, examine your financial situation, consider what debts and expenses you need to cover. Our life insurance calculator can help determine the coverage you need.
Here are some of the typical expenses that you should consider:
Funeral and Final Expenses
In Canada, the cost of a funeral can range from a modest $5,000 to well over $15,000. Factor these final expenses into your insurance policy. Otherwise, your family would have to pay if you haven’t planned for this cost. Think about the service or celebration of life you want and budget for it in your policy.
Mortgage Expenses
You need to factor your home into your insurance needs. You’ll want to ensure that your loved ones don’t have to sell the house when you’re gone. You may have quite a large mortgage to pay off in the future. Your life insurance policy can help pay off those expenses.
Life insurance is a more flexible and versatile option for paying off your mortgage versus mortgage loan insurance. The premiums on a life insurance plan are a small price for the peace of mind of knowing you are taking care of your loved ones.
Lifestyle Expenses
Is your family relying on your income to maintain their standard of living? It is advisable to have at least 5-7 times your yearly net income accounted for in your insurance policy if they are. It ensures your loved ones can continue to live in your home, but they can maintain their current lifestyle.
Childcare Expenses
If you should pass unexpectedly, your spouse becomes the sole caregiver. Will they need to send your kids to before and after-school care? Will they struggle to cover childcare expenses on a single income? This is an essential factor in determining how much insurance you will need.
Post-Secondary Education
Sure, your kids may not be ready for college or university just yet, but you want to help fund their education eventually. Or perhaps they are currently attending university or college. You want to ensure that they can focus on their studies. Consider the education costs in your province. Measure that against how much you have saved and in RESPs, and factor that into your insurance calculation. Don’t overlook expenses beyond tuition, including the costs of living off-campus, books, and groceries.
Charitable Donations
Is there a charity that is meaningful to you? Life insurance can help you leave a legacy behind that makes the world a better place. There are multiple ways to ensure the charity of your choice gets a meaningful contribution, including naming a charity as your beneficiary.
It doesn’t take much to make a difference. Imagine if everyone left a donation when they passed. The more coverage you have outlined in your policy, the higher the premiums can be each month, so make sure that your contribution makes financial sense.
Get the Right Insurance Policy for Your Needs
With a comprehensive life insurance plan, you have peace of mind that your loved ones will not be saddled with covering funeral costs. They will also be protected from paying other outstanding payments such as legal fees, estate taxes, and other costly debts during an already difficult time.
We can help you find the right life insurance policy to cover your needs. Canada Protection Plan is a leading provider of No Medical & Simplified Issue Life Insurance. And with over 25,000 licensed life insurance advisors across the country that offer our plans, we are here for your life insurance needs.
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